March market update and investment risks

The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.

These views are as at the end of March 2025.

The value of investments can go down as well as up. Investors could get back less than they put in.

Please remember that past performance is not a reliable indication of the future performance.

Overview

Going into 2025, the global economic outlook was initially positive, but proposals for broad trade tariffs by the US administration brought significant uncertainty. Despite moderating, inflation remained above central bank targets. In the US, the annual rise in core inflation, which excludes the volatile sectors of food and energy, decreased to 3.1% in February from 3.3% in January. The UK’s annual headline inflation rate experienced a decline, from 3.0% in January to 2.8% in February. The inflation rate in the eurozone also showed a minor reduction.

The Federal Reserve opted to hold interest rates steady at 4.25% to 4.5%. The Bank of England cut interest rates to 4.5% in February and the European Central Bank reduced its key interest rate in January and March to 2.5%. It emphasised a cautious stance in response to growing uncertainty caused by trade tensions. In contrast to other developed nations, monetary policy in Japan is being tightened. The Bank of Japan delivered another interest rate increase in January to 0.5%.

Economic growth in most major economies slowed considerably, reflecting the impact of uncertain global trade policies and fluctuating market conditions. The US economy experienced a deceleration, with Gross Domestic Product (GDP) growing at 2.4% in Q4, down from 3.1% in Q3. In the UK, GDP grew by 0.1% in Q4 after remaining stagnant in Q3. The eurozone also faced a slowdown, with GDP increasing 0.1% in Q4, down from 0.4% in Q3. Japan’s economy, however, saw unexpected growth.  China’s economy also experienced strong growth.

Equities (or shares)

UK equities started 2025 positively. The FTSE All-Share Index hit an all-time high and returned 4.5%, ahead of the US and global markets which ended the quarter in negative territory. As confidence in the US appeared to wane, investors looked favourably on UK equities. However, worries about President Trump’s proposed tariff plans curbed investor risk appetite. Energy and financials were the best performers. In contrast, consumer discretionary was one of the weakest.

US equities declined as uncertainty about trade tariffs hurt investor sentiment. After climbing to a record high in February, the S&P 500 Index experienced a correction, falling 10% and registering its worst quarterly performance since 2022 amid concerns that import tariffs could lead to higher inflation and slower economic growth. Information technology stocks were among the biggest fallers. 

European equities started positively. Investors were encouraged by the prospect of fiscal stimulus in Germany and increased defence spending. Europe was one of the leading markets globally outperforming the US by a wide margin. 

The Japanese stockmarket fell as a strong yen and fears about global growth weighed. However, the strength of the currency enhanced returns for non-yen-based investors.

What do you mean by Equities?

• Equities are commonly known as "shares". When a fund buys a company share, it is investing in a company and, in exchange, receives a share of the ownership of that company. Shares give two potential investment benefits:
  
  
  • share prices may increase as the value of the company increases.
    
    
  • companies may pay dividends - regular payments made to shareholders based on how well the company is doing.

What are the general risks of this type of asset? 

• Over the longer-term (over 10 years), equities are considered to offer greater growth potential than many other asset types. However, the value of any investment can go down as well as up and so there is a higher risk of losing your original capital than investing in fixed interest securities (see below).

• The financial results of other companies and general stock market and economic conditions can all affect a company's share price, and consequently the value of any fund investing in that company.

Fixed interest

The price of UK government bonds (gilts) rose modestly, although they underperformed US government bonds (treasuries). The yield of the 10-year UK gilt rose to 4.7%, from 4.6% at the end of 2024.

Global government bonds fell 0.5%, with the majority of central banks expressing caution about cutting rates as economic and geopolitical uncertainty prevails. The Federal Reserve maintained its funds rate at 4.5%, with policymakers highlighting that proposed tariffs could push up inflation.

The price of US treasuries rose 3.0% (in US dollars) and the 10-year bond yield finished down at 4.2%. The price of German bunds fell 1.8% (in euros) as the release of the German ‘debt brake’ could see defence spending increase. US corporate bonds rose 2.4%, outperforming both European and UK corporate bonds.

What do you mean by Fixed Interest?

• Fixed interest securities, more commonly known as "bonds", are loans issued by companies or by governments in order to raise money.
  
  
• Bonds issued by companies are called Corporate Bonds, those issued by the UK government are often called Gilts or UK Government bonds and those issued by the US government are called Treasury Bonds.
  
  
• In effect, all bonds are IOUs that promise to pay you a sum on a specified date and pay a fixed rate of interest along the way.
  
  
• Index-linked securities are similar but the interest payments and redemption value are normally increased by a price index e.g. for UK government index-linked securities, interest payments and redemption value are increased in line with the UK Retail Price Index.

What are the general risks of this type of asset

• On the whole, investing in Government or Corporate Bonds is seen as lower-risk than investing in equities. To date, no UK government has ever failed to pay back money owed to investors. But with Corporate Bonds there is a risk that the company may not be able to repay its loan or that it may default on its interest payments.
  
  
• Corporate and Government bonds are sensitive to interest rate trends. An increase in interest rates is likely to reduce their value, and hence the value of any fund investing in them.

Property

For the three months to end-February 2025 (the latest date for which data is available), capital values for All UK commercial property increased by 1.1%, according to property consultant CBRE. This was a similar growth rate to the one seen in the previous three months to November 2024, which was 1.0%. Including rental income, the total return over the three months to end-February was 2.5%. Over the three months, capital value growth was led by the industrial sector, closely followed by the retail sector. In both cases, the growth rate decelerated slightly from the previous three months. Capital values also rose in the office sector (they fell in the previous three months), but at a slower pace. Rental values grew in all sectors over the three months to end-February, with growth strongest in industrials.

What do you mean by Property?

• For our funds we would mean commercial property investment. This generally means the fund is sharing in the returns from the ownership of some buildings (for example, offices and shopping centres).
  
  
• The value of the property may increase and tenants may pay rent to the owners of the building.

What are the general risks of this type of asset

• Property can be difficult to buy and sell quickly. Fund managers may have to delay withdrawal of money by customers from a property fund until they can sell some of the buildings the fund invests in.
  
  
• The actual value of a property is what someone is prepared to pay for it - an actual sale value. As sales are infrequent, interim valuations are based on a valuer's opinion and may be revised up or down from time to time. This can affect the value of a fund invested in commercial property, with the value possibly fluctuating significantly and could result in an investor not getting back the amount they originally invested.
  
  
• This leads to a number of risks for funds investing in property:
  
  
  • Cash could remain uninvested as property assets can be difficult to buy, leading to lower returns than expected.
     
  • The value of the fund may be reduced if a large number of withdrawals are requested and it is necessary for properties to be sold at reduced prices.
    
    
  • There may be delays removing your money from the fund if property cannot be sold.
    
    
  • Property fund valuations may be revised periodically, upwards or downwards.
    
    
  • Rental income is not guaranteed. Defaulted rent and unoccupied properties could reduce returns.
    
    
  • If the size of the fund falls significantly, the fund may have to hold fewer properties, and this reduced diversification may lead to an increase in risk.